940.331 

W119W 


WAR  REVENUE 

r ] ' . ' ' 

SPEECH 

OF 

HON.  J.  W.  WADSWORTH,  Jjel 

OF  NEW  YORK 
IN  THE 

SENATE  OF  THE  UNITED  STATES 

THURSDAY,  SEPTEMBER  6 (LEGISLATIVE  DAY 
OF  AUGUST  15),  1917 


WASHINGTON 

1917 


1185S — 17S73 


/ 


SPEECH 

OF 

HO N.  J.  W.  WADSWORTH.  Jr. 

The  Senate  had  under  consideration  the  bill  (H.  R.  4280)  to  provide 
revenue  to  defray-  war  expenses,  and  for  other  purposes. 

Mr.  WAD 8 WORTH.  I fear  I shall  seem  to  those  Senators 
who  have  listened  to  this  debate  to  be  somewhat  unorthodox  in 
that  I shall  not  refer  in  any  extended  manner  to  some  of  the 
claims  for  credit  that  have  been  made  upon  the  floor.  It  strikes 
me  that  we  should  endeavor  to  direct  our  attention  to  what  the 
Senate  is  doing  rather  than  to  determine  which  Senator  is 
doing  it. 

I have  the  greatest  respect  for  the  Committee  on  Finance, 
and  I take  this  occasion  to  express  my  admiration  for  the  work 
which  it  has  done.  At  the  same  time  I do  not  believe  there  is 
any  member  of  that  committee  who  would  claim  infallibility, 
nor  will  any  member  of  the  committee  contend  that  there  is 
much  importance  attached  to  the  question  as  to  where  the  credit 
shall  lie  for  raising  some  of  the  rates  in  the  bill  since  the  com- 
mittee made  its  report.  The  country,  sir,  is  not  concerned  with 
the  distribution  of  credit  on  the  floor  of  the*Senate  as  between 
the  majority  and  the  minority  of  the  committee  nearly  as  much 
as  it  is  concerned  as  to  what  the  outcome  shall  be.  So  with 
the  permission  of  my  colleagues  I will  not  endeavor  to  throw 
any  light  upon  that  moot  question  which  has  been  so  often 
referred  to. 

Mr.  President,  I have  listened  to  many  of  the  addresses  with 
very  deep  interest.  The  Senator  from  Washington  [Mr.  .Tones] 
has  made  an  exceedingly  interesting  address  to-day,  and  I was 
particularly  impressed  with  that  portion  of  it  in  which  he 
declared,  at  the  beginning,  his  belief  that  this  war  was  to  be  a 
long  war,  that  it  might  not  end  within  a year,  and  might  go 
even  further.  I agree  with  him  in  the  analysis  of  the  mili- 
tary situation.  It  must  be  apparent  to  every  person  who 
11858—17873  3 


4 


endeavors  to  measure  the  forces  that  arte  at  play  in  Europe  and, 
in  fact,  over  the  world,  that  the  contest  is  not  drawing  to 
an  early  close.  The  comparative  disorganization  of  Russia, 
without  any  question,  unless  some?  other  unlooked-for  event 
takes  place,  may  be  said,  I think,  safely,  to  have  added  one 
year’s  time  to  the  duration  of  the  war.  It  is  for  the  very  reason, 
sir,  that  I am  convinced  we  are  in  for  a struggle  which  will 
last  through  a considerable  period  of  time— and  no  man  may 
prophesy  accurately  just  what  its  duration  will  be — that  I think 
it  incumbent  upon  the  Congress  of  the  United  States  to  build  in 
its  taxation  measures  a fiscal  system  which  will  withstand  any 
strain  which  may  be  imposed  upon  it  as  the  months  and  perhaps 
the  years  go  by.  If  I could  believe  that  the  war  would  end 
within  one  year  and  that  this,  as  a result,  would  be  the  only 
extraordinary  tax  bill  to  be  presented  to  Congress,  I would  the 
more  willingly  follow  the  suggestions  of  the  Senator  from  Wash- 
ington [Mr.  Jones]  and  the  suggestions  of  those  who  have  con- 
tended, as  he  has  contended  to-day,  that  we  should  greatly 
increase  the  rates  of  taxation. 

Mr.  President,  it  would  be  difficult  to  fix  a limit  to  the  amount 
of  money  which  can  be  raised  by  taxation  in  the  United  States 
during  one  year ; and  if  it  would  suffice  to  raise  all  we  could 
in  the  year  1918 — to  actually  conscript  wealth  in' order  to-  win 
the  war  within’  that  period — and  if  it  were  possible  to  do  it,  I 
would  not  contend  •against  the  utter  and  entire  conscription  of 
wealth.  But,  Mr.  President,  we  must  exercise  some  caution, 
some  prudence;  we  must  direct  our  examination  toward  the 
future  and  attempt,  if  we  can,  to  calculate  the  weight  of  the  bur- 
dens which  may  come  to  us  in  the  year  1919,  in  the  year  1920, 
perhaps,  and  even,  sir,  the  burdens  which  may  come  to  this,  coun- 
try after  the  war  is  over ; for,  to  put  it  mildly,  we  shall  be  eon- 
fr<?nted  with  some  exceedingly  interesting  problems  at  the  con- 
clusion of  this  great  war.  So  I say  that,  while  I would  be  will- 
ing to  assess  the  most  drastic  and  well-nigh  eonfiscatory  tax  if 
I felt  absolutely  certain  that  this  burden  would  have  to  be  car- 
ried for  only  one  year,  by  the  same  course  of  reasoning,  Mr. 
President,  I am  opposed  to  assessing  at  this  time  overdrastic  or 
llg58—17873 


o 


nearly  confiscatory  taxes,  becauses  I am  confident  that  we  will 
have  to  carry  these  burdens  for  more  than. one  year. 

A good  many  efforts  have  been  made  during  this  debate  to 
compare  our  condition  with  the  condition  of  some  of  our  allies, 
and  to  draw  conclusions  therefrom.  That  is  a rather  dangerous 
process,  and  some  of  the  conclusions  reached  by  that  process 
can  be  very  much  in  error.  It  has  been  said  that  we  should  do 
what  England  has  done — not  what  England  did  at  the  begin- 
ning of  the  war,  but  what  England  is  doing  now.  I shall  not 
stop  to  compare  the  rates  fixed  in  this  tax  bill  as  now  written 
with  the  rates  of  taxation  fixed  in  England  at  the  beginning 
of  the  war,  or  the  second  year  of  her  participation,  or  during 
this  present  year,  but  I shall  endeavor  to  point  out  to  the  Sen- 
ate that  the  industries  and  the  commercial  structures  of  England 
are  on  a very  different  basis  than  are  the  industries  and  the 
commercial  structures  of  the  United  States. 

England,  sir,  is  an  old  country ; her  industries  apd  her  com- 
merce have  been  long  established.  English  bankers  and  mer- 
chants and  manufacturers  have  been  extending  their  operations 
all  over  the  world  since  the  close  of  the  Napoleonic  wars,  at 
which  time,  if  I remember  history  correctly,  the  great  industrial 
and  commercial  expansion  of  England,  coincident  with  the  estab- 
lishment of  the  modern  factory  system,  commenced.  It  can 
truthfully  be  said  that  England’s  commerce  and  industries  and 
banking  have  reached  a degree  of  standardization  that  has  not 
been  reached  in  the  United  States ; and  I think  the  explanation 
is  comparatively  simple  and  must  be  conceded  by  any  person 
who  would  compare  the  conditions  of  the  two  countries. 

We  are  still  expanding  internally^  Industrially  speaking  and 
commercially  speaking  we  are  still  a new  country ; and  I ven- 
ture to  say  that  it  will  be  two  or  three  or  perhaps  four  genera- 
tions before  we  shall  reach  that  stage  of  standardization  in 
our  industries  and  business  which  is  now  occupied  by  the  in- 
dustries and  business  of  England.  It  is,  therefore,  much  easier, 
Mr.  President,  for  an  English  statesman  to  measure  the  effect  of 
taxation  upon  English  industry.  The  cost  of  production  within 
the  borders  of  England  of  any  article  is  practically  uniform  ; the 
wage  scales  within  the  borders  of  England  in  a given  industry 
11858—17873 


6 


are  practically  uniform ; the  charges  for  freight  transportation 
in  England  are  much  less  important  in  their  relation  to  the 
cost  of  the  finished  product  than  are  the  transportation  charges 
in  the  United  States.  England  being  a small,  compact  country, 
> it  is  not  nearly  so  difficult  for  the  British  Government  to 
measure  the  effect  of,  we  will  say,  a war-profits  tax  upon  the 
industries  of  England,  because  their  degree  of  standardization 
is  so  far  advanced  that  it  is  reasonably  known  in  advance  just 
what  burdens  they  can  bear. 

When  the  war  broke  out  industry  in  England  was  not  in  a 
process  of  marked  expansion ; it  was  moving  along  settled  lines, 
well-established  channels ; and  a statistician  or  economist 
could  calculate  exactly  what  burdens  the  industries  of  England 
could  withstand  from  year  to  year.  So  it  may  seem  upon  first 
thought  that  they  moved  more  boldly  than  we  have  with  re- 
spect to  the  rates  recited  in  the  respective  tax  laws.  They 
appear  to  have  taxed  their  industries  at  a little  higher  rate; 
but,  Mr.  President,  our  industries  have  been  going  through  a 
remarkable  evolution  during  the  fast  three  years,  all  the  more 
remarkable  because  when  compared  to  their  condition  during 
the  three  prewar  years,  which  were  subnormal,  their  prosperity 
appears  comparatively  large.  Our  three  prewar  years  were 
abnormal  years,  just  as  our  three  years  of  the  war  have  been 
abnormal  years ; and  it  is  very  difficult  to  take  those  two  periods 
and  compare  them  with  the  two  like  periods  in  Great  Britain 
oi*  even  in  France  and  say  to  the  industries  of  America,  “ We 
will  do  to  you  exactly  what  England  and  France  did  to  their 
industries.” 

It  is  perfectly  true  that  some  of  the  manufacturing  indus- 
tries of  the  United  States  have  been  tremendously  prosperous 
during  the  last  three  years;  it  is  perfectly  true  that  sonie 
very  large  fortunes  have  been  accumulated,  although  there 
are  not  nearly  as  many  of  them  as  some  sections  of  the  press 
would  have  the  public  believe.  I think  no  one  will  contend 
that  those  fortunes  and  those  industries  should  escape  their 
just  burden  of  taxation;  but  while  we  are  attempting  to 
measure  the  burden  which  they  can  carry — and  they  are  the 
conspicuous  few — we  must  take  into  consideration  the  burden 
11858—17873 


7 


which  the  average  business  institution  can  carry.  When  we 
come  to  the  average  business  institution  we  do  not  find  any  such 
remarkable  condition  of  affairs. 

> Much  has  been  said  upon  the  floor  about  the  effect  of  this 
proposed  tax  law  upon  the  United  States  Steel  Corporation, 
upon  the  Bethlehem  Steel  Corporation,  and  upon  the  Du  Pont 
Powder  Co.  I have  been  tempted  to  believe  that  there  are 
some  Senators  here  who  think  that  our  tax  laws  should  be  so 
framed  as  to  suit  and  meet  the  conditions  of  those  three  com- 
panies without  much  regard  to  the  great  number  of  other  or- 
ganizations in  the  United  States.  So  often  have  they  been  cited 
as  examples,  horrible  or  otherwise,  that  I have  been  tempted  on 
more  than  one  occasion  to  suggest  that  a separate  tax  bill  be 
drawn  applicable  to  them  alone,  and  then  we  might  get  down  to 
a discussion  of  a tax  bill  applicable  to  the  ordinary  industries 
of  the  United  States. 

There  have  been  some  rather  remarkable  comments  made 
upon  finance  and  economy  in  the  discussion  of  the  affairs  of 
some  of  these  great  corporations.  The  Senator  from  Washing- 
ton to-day  stated  very  plainly  on  two  or  three  occasions  that  he 
had  no  concern  for  percentages ; that  the  people  of  the  United 
States,  the  patriotic  people  of  the  United  States,  had  no  con- 
cern for  percentages ; but  I think  one  is  entitled  to  inquire  how 
we  are  to  measure  any  burden  of  taxation  except  by  the  per- 
centage system?  * When  a question  is  asked  a Senator  who  is 
explaining  his  theory  of  taxation  and  that  question  includes  an 
inquiry  as  to  what  percentage  the  net  jffofits  of  a corporation 
bear  to  its  invested  capital  and  the  reply  is  made  that  that  is 
of  no  importance  and  of  no  concern  to  a Senator  or  to  the 
public,  I wonder  how  the  industries  of  the  United  States  would 
thrive  under  that  kind  of  financial  management,  for  before  we 
do  anything  else  in  managing  a business  or  writing  a tax  bill 
we  must  resort  to  percentages  to  find  out  where  we  are. 

I fear  also,  Mr.  President,  that  the  impression  has  been  cre- 
ated. or  has  been  sought  to  be  created,  that'  the  two  or  three 
great  corporations  that  have  been  so  often  named  and  about 
which  I know  very,  very  little,  are  owned  by  one,  two,  three, 
or  four  men,  respectively.  One  of  the  purposes  of  my  question 
11858—17873 


8 


addressed  to  the  Senator  from  Washington  with  respect  to  the 
United  States  Steel  Corporation  was  to  ascertain,  if  possible, 
what  effect  his  theory  of  taxation  would  have  upon  the  stock- 
holders of  the  United  States  Steel  Co.,  of  whom,  I believe  there 
are  100,000,  the  great  majority  of  whom,  I understand,  are  com- 
paratively poor  people,  many  of  them  being  mechanics  working 
in  the  steel  mills.  But  that  apparently,  according  to  the  Senator 
from  Washington,  is  not  an  important  question;  it  is  of  no  con- 
cern to  the  Senate  or  to  the  public. 

Mr.  President,  it  has  been  suggested  that  it  would  be  a judi- 
cious and  proper  exercise  of  the  taxing  power  so  to  fix  the 
taxes  upon  war  profits  or  excess  .profits,  whichever  we  shall  call 
them,  as  to  leave  no  dividends  to  the  stockholders.  That  wras 
the  clear  intimation  made  in  the  argument  this  afternoon.  May 
I suggest  that  we  can  do  that  for  just  one  year,  but  after  one 
year's  attempt  at  any  such  taxation  as  that  the  United  States 
would  be  prostrate  and  we  would  be  defeated  in  this  war?  I 
think  it  well,  sir,  to  straighten  out  a few  of  these  ideas,  if  I 
may  presume  to  do  so  or  to  attempt  to  do  so,  because,  having 
been  inserted  in  the  Record,  it  goes  out  to  the  country  that  it  is 
wise  and  proper  to  disregard  the  stockholders  of  corporations, 
who  are  American  citizens  and  dependent  by  the  thousands 
upofi  some  dividends,  at  least,  to  maintain  themselves. 

We  can  not  .eat  our  cake  and  have  it.  As  I said  at  the  be- 
ginning^ we  can  raise  almost  any  amount  of  money  the  first 
year,  beg  if  we  make  it  impossible  for  people  to  continue  in 
business  upon  an  expanding  scale  by  taking  away  from  them 
too  much  of  their  surplus  or  all  of  their  surplus,  at  the  end  of 
one  year  the  business  of  the  United  States  will  be  stagnaut. 

There  are  only  two  directions  in  which  business  can  move — 
forward  or  backward.  When  I used  the  term  “ stagnant,”  sir, 
I used  an  inaccurate  expression,  for  a business  that  is  stagnant 
is  in  effect  going  backward.  No  business  stands  still.  It  is 
either  going  forward  or  it  is  going  backward,  and  the  thing 
which  should  concern  us  more  than  anything  else  in  writing  a 
tax  law,  particularly  in  the  first  year  of  a .war  when  to  a large 
extent  our  tax  measures  must  be  experimental,  is  that  we  shall 
guarantee  the  continued  expansion  and  forward  movement  of 
11858—17873 


#• 


9 

our  industries.  Mi*.  President,  we  can  not  have  a forward 
movement,  we  can  not  have  expansion  of  industry  if  the  Gov- 
ernment takes  all  the  surplus  profit.  Instead,  we  are  bound  to 
have  industrial  collapse ; and  there  is  no  more  effective  method 
of  bringing  our  Nation  to  ultimate  military  defeat  than  by  caus- 
ing an  industrial  collapse  through  the  imposition  of  taxes  which 
will  drain  the  country  of  its  surplus  of  financial  resources. 

What  are  the  functions  of  large  profits?  What  are  the  func- 
tions of  large  incomes?  I have  heard  it  stated  here  that  the 
large  profits  that  have  been  heaped  up  by  corporations  during 
the  last*  three  years — and  without  any  doubt  there  have  been 
some  very  large  profits — have  been  heaped  up,  and,  to  quote  the 
language  of  the  Senator  from  Idaho  [Mr.  Borah]  “ have  been 
stored  away  ” ; painting  the  picture  to  the  public  that  these 
millions  or  billions,  as  the  case  may  be — I do  not  count  myself 
accurate  in  statistics — earned  by  our  business  concerns  dur- 
ing the  last  three  years  have  gone  into  the  pockets  of  a few 
people  and  have  been  spent,  if  spent  at  all,  solely  upon  luxuries ; 
stored  away,  presumably,  if  the  picture  is  carried  out  with  due 
regard  to  the  artistic  necessities,  to  purchase  automobiles,  to 
build  palaces,  to  maintain  yachts.  But,  Mr.  President,  I venture 
to  say„  that  the  vast  majority  of  the  so-called  war  profits  have 
been  reinvested  in  expanded  plants ; and  thank  Heaven,  sir,  that 
has  been  done,  for  had  it  not  been  done  it  would  have  proved 
impossible  for  us  to  equip  our  Army  and  our  Navy  for  the'  war 
that  we  embarked  upon  last  April. 

Mr.  HARDING.  Mr.  President— 

Mr.  WADSWORTH.  I yield  to  the  Senator  from  Ohio. 

Mr.  HARDING.  Is  the  Senator  from  New  York  aware  that 
one  great  concern  in  this  country,  whose  name  he  has  given  in 
his  very  interesting  remarks,  received  an  order  from  a depart- 
ment of  the  Government  requiring  it  to  make  practically  a 
twenty-million-dollar  extension,  under  the  admonition  from  the 
governmental  head  that  if  these  extensions  were  not  made  the 
Government  itself  would  be  impelled  to  take  charge  of  the  plant 
and  operate  it? 

Mr.  WADSWORTH.  Mr.  President,  I have  heard  of  that 
case.  I have  no  personal  or  direct  knowledge  of  it;  but  I be- 
11858—17873 


10 


lieve  the  statement  of  the  Senator  from  Ohio  to  he  true  that 
the  particular  corporation  to  which  he  refers  invested  $20,000,000 
to  expand  its  plant  in  order  to  meet  governmental  needs. 
Rather  than  calling  it  something  reprehensible  to  have  accumu- 
lated profits  during  this  war,  and  rather  than  to  try  to  arouse 
the  prejudices  and  the  passions  of  the  people  of  the  United 
States  against  concerns  that  have  made  these  profits,  I am  glad 
that  they  have  made  them,  in  order  that  that  corporation  could 
marshal  $20,000,000  to  invest  to  meet  the  needs  of  the  Govern- 
ment. . s 1 

Mr.  HARDING.  Mr.  President,  will  the  Senator  yield  further? 

Mr.  WADSWORTH.  I yield  again. 

Mr.  HARDING.  I should  like  the  Senator  to  put  in  ’'the 
record  of  his  very  interesting  speech  the  fact  that  the  expan- 
sions were  made  to  furnish  the  Government  its  needs  at  prices 
fixed  by  the  Government. 

Mr.  WADSWORTH.  My  recollection  of  the  incident  is  that 
the  price  is  to  be  fixed  by  the  Government  at  a later  time. 

Mr.  WEEKS.  Mr.  President — - 

The  PRESIDING  OFFICER.  Does  the  Senator  from  New 
York  yield  to  the  Senator  from  Massachusetts? 

Mr.  WADSWORTH.  I yield  to  the  Senator  from  Massachusetts. 

Mr.  WEEKS.  May  I suggest  to  the  Senator  from  New  York 
that  in  all  probability,  if  this  company  did  invest  $20,000,000  in 
additions  to  its  plant  at  this  time,  when  business  conditions 
return  to ‘normal  it  will  have  to  charge  off  about  $10,000,000  in 
order  to  get  back  to  the  normal  standard  and  to  the  costs  which 
wmild  have  resulted  in  normal  times? 

Mr.  WADSWORTH.  Mr.  President,  the  Senator  from  Massa- 
chusetts is  entirely  right,  and  I am  inclined  to  believe  that  he 
has  understated  the  matter.  Upon  the  invitation  of  the  Govern- 
ment, literally  dozens  and  scores  of  these  much-abused  business 
concerns  have  used  these  so-called  war  profits,  which  the  Sen- 
ator from  Idaho  has  depicted  as  being  stored  away  in  the 
pockets  of  the  few,  and  are  using  them  to-day  in  the  service  of 
the  country  to  meet  the  needs  of  the  Government  by  expanding 
theft  plants  to  construct  field  artillery,  heavy  artillery,  shrapnel 
shells,  and  supplies  of  every  kind  ami  description  for  the  Army 
11858—17873 


11 


and  the  Navy.  We  are  fortunate,  Mr.  President,  that  that  is  the 
state  of  affairs  under  which  we  commenced  this  war. 

Now,  sir,  we  do  not  know  how  long  this  war  is  going  to  go  on. 
This  tax  bill,  if  I remember  correctly — and  if  not  the  Senator 
from  North  Carolina  can  correct  me — is  to  take  $1,200,000,000 
of  war  profits  in  1918  from  this  class  of  concerns ; and  it  is  not 
a confined  class.  It  is  a very  large  and  widely  extended  class 
of  concerns.  It  would  be  surprising,  I believe — and  I wish  I 
had  the  figures  here — it  would  be  surprising,  I believe,  if  the 
Senate  could  know  how  widely  scattered  are  the  industries  which 
are  called  upon  to  support  this  Government  in  the  operations  of 
tho  war.  We  are  to  take  $1,200,000,000  from  them,  which  in 
all  frankness  I say  is  a pretty  round  sum.  Of  course  it  is  pos- 
sible to  take  more.  We  could  take  $3,000,000,000  from  them  if 
we  waited  until  the  end  of  1918  and  sprung  it  on  them  quickly. 
We  could  take  three  and  a half  billions  from  them ; but  where 
would  we  be  in  1919?  There  would  be  no  more  expansion.  You 
can  not  expect  any  man  or  any  company,  great  or  small,  to  build 
an  addition  to  his  plant  on  air.  He  can  not  do  it  by  borrowing 
money  if  the  tax  rates  are  so  high  as  to  frighten  away  the 
banker.  He  can  only  do  it  by  using  his  surplus,  accumulated 
out  of  a prosperous  year’s  business. 

It  strikes  me,  Mr.  President — and  it  is  with  some  hesitation 
that  I again  refer  to  this  war-profits  tax,  because  wTe  have  set- 
tled it ; but  the  Senator  from  Washington  [Mr.  Jones]  has  con- 
stantly referred  to  it  in  his  speech  this  afternoon — it  strikes 
me  that  the  committee  has  done  the  prudent  thing,  has  done  the 
wise  thing.  As  the  Senator  from  Washington  says,  this  may 
not  be  our  last  tax  bill.  I am  inclined  to  think  it  will  not.  It 
may  be  that  we  shall  have  to  raise  rates;  it  may  be  that  we 
shall  have  to  develop  new  forms  of  taxation  if  the  burdens  of 
the  war  become  heavier  and  if  it  goes  on  for  two  or  three  or 
four  years.  But  I venture  to  say  that  if  some  of  the  theories 
proposed  upon  this  floor  in  the  matter  of  taxation  were  written 
into  this  bill,  and  we  did  have  in  effect  actual  conscription  of  all 
the  surplus  profits,  it  would  be  our  last  tax  bill. 

Mr.  SMOOT.  Mr.  President,  will  the  Senator  yield? 

Mr.  WADSWORTH.  I yield  to  the  Senator  from  Utah. 

11858—17873 


12 


Mr.  SMOOT.  Right  in  that  connection  I desire  to  say  to  the 
Senator  there  has  been  a persistent  effort  among  certain  Sena- 
tors to  create  the  impression  throughout  the  country  that  we 
were  not  taking  the  percentage  of  profits  that  we  ought  to.  I 
want  to  call  the  Senator’s  attention  to  the  fact  that  many  Sena- 
tors in  this  debate  have  said  that  50  per  cent  is  the  highest  rate 
in  any  one  bracket  that  will  be  collected  from  incomes.  That  is 
not  so.  The  present  law  imposes  a tax  of  17  per  cent  upon 
incomes  over  and  above  ,$2,000,000.  Now,  take  the  case  of  an 
individual  whose  percentage  of  the  profits  of  a corporation  earn- 
ing 10  per  cent  per  annum  would  be  $1,000,000.  Under  the  exist- 
ing law  and  the  pending  bill  we  impose  an  excess-profits  tax  of 
52:nr  per  cent.  On  the  $1,000,000  there  would  be  collected 
$529,000.  Deducted  Trom  the  million  dollars  leaves  $471,000. 
Then  deduct  the  income  tax  on  that  amount,  being  38^j  per  cent, 
amounts  to  $179,168.40,  leaving  for  the  individual,  out  of  the 
$1,000,000,  $291,831.60,  providing  he  had  no  other  income  from 
any  source.  If  his  income  was  larger,  the  percentage  of  tax 
would  be  greater. 

Mr.  WADSWORTH.  Mr.  President,  let  me  say,  by  way  of 
comment  on  the  figures  presented  by  the  Senator  from  Utah, 
that  that  would  certainly  seem  to  be  at  least  an  approach  to  the 
conscription  of  wealth. 

Mr.  HARDING.  Mr.  President,  before  the  Senator  from  New 
York  gets  away  from  this  very  interesting  phase  of  finance  and 
industrial  operations  I should  like  to  have  him  refer  to  the  fact 
that  the  stocks  and  bonds  of  industrial  institutions  and  financial 
institutions  in  the  United  States  have  very  naturally  been  given 
their  valuation  from  the  activities  and  profits  incident  to  the 
last  three  years.  Naturally,  therefore,  these  bonds  are  in  bank 
as  collateral  to  loans  on  values  adjusted  for  three  years  of  ac- 
tivity during  the  European  war.  Has  the  Senator  contemplated 
the  effect  on  financial  problems  of  greatly  reducing  the  value  of 
these  collaterals  by  excessive  demands  upon  these  concerns? 

Mr.  WADSWORTH.  Mr.  President,  if  you  impair  the  collat- 
eral, the  bank  of  course  will  ask  for  more  collateral  or  call  the 
loan,  and  than  you  have  severe  financial  disturbance. 

11858—17873 


13 


I think  the  same  observations  may  be  made  with  respect  to 
personal  incomes  that  may  be  made  with  respect  to  the  profits 
of  business  concerns,  partnerships,  or  corporations.  It  is  per- 
fectly true,  sir,  that  any  man  can  live,  as  the  Senator  from 
Nebraska  [Mr.  Norris]  said  this  afternoon,  on  $15,000  a year 
It  is  perfectly  true,  he  might  just  as  well  have  said,  that  he 
could  live  on  $10,000  or  $5,000  a year.  I have  never  felt  any 
anguish  over  the  sufferings  of  the  rich  during  a war  or  at 
any  other  time.  There  is  no  means,  whether  by  taxing  or  other- 
wise, by  which  we  could  starve  the  rich  if  we  wanted  to.  They 
can  always  manage  to  survive  by  living  on  their  capital.  But 
there  is  a very  important  element  other  than  the  fixing  of  a 
standard  at  which  any  man  may  live  and  support  his  family  and 
send  his  children  to  school,  and  that  is  the  function  to  be  per- 
formed by  the  surplus  of  that  man’s  income. 

The  picture  painted  by  the  Senator  froln  Nebraska  would 
lead  people  to  believe  that  the  121  persons — I think  that  is  the 
number — who  enjoy  incomes  in  the  United  States  of  over  $1,- 
000,000  spend  all  that  money  for  their  personal  luxuries,  and 
that  every  man  who  happens  to  enjoy  an  income  in  excess  of 
his  actual  living  necessities  spends  it  on  idle  luxuries.  Mr. 
President,  I venture  to  say  that  those  who  are  fortunate  enough 
to  have  these  tremendous  incomes  spend  a comparatively  small 
proportion  of  them  upon  their  living  expenses.  I venture  to 
say,  further,  that  the  great  proportion  of  the  income  goes  back 
into  productive  activity  in  the  form  of  new  investments  which 
build  new  concerns,  employ  more  men,  and  develop  resources  all 
over  the  country.  That  is  what  has  been  going  on  in  the  United 
States  ever  since  the  Civil  War — expansion,  development.  All 
of  it  comes,  or  nearly  all  of  it  comes,  from  making  use  of  the 
surplus  or  the  savings,  whichever  you  choose  to  call  it,  out  of 
the  incomes  of  the  people. 

I think  the  best  definition  of  capital  that  I have  ever  heard  is 
that  it  is  the  organized  savings  of  the  people.  Nowryou  are  not 
helping  the  country,  you  are  not  helping  the  industries,  you  are 
not  helping  the  war  when  you  prevent  people  from  saving;  and 
I even  apply  that  principle  to  the  very  rich.  Do  not  think  for 
11858— 17873 


14 


a moment  that  I believe  that  the  rates  fixed  in  this  bill  are  too 
high.  I think  the  very  rich  man  should  pay  50  per  cent  on  the 
top  bracket;  but  the  money  even  of  the  multimillionaire  which 
he  does  not  need  and  which  he  does  not  use  for  his  own  living 
expenses  when  reinvested  and  set  to  work  in  the  form  of  organ- 
ized capital  and  joined  in  with  all  the  savings  of  all  the  other' 
people  in  the  country  who  save  anything,  is  of  more  use  to  the 
United  States  for  a two-year  war  or  a three-year  war  or  a 
four-year  war  than  if  it  were  all  taken  away  from  them  and  put 
in  the  Tresury  in  the  year  1918. 

Mr.  LODGE.  Mr.  President 

Mr.  WADSWORTH.  I yield  to  the  Senator  from  Massachusetts. 

Mr.  LODGE.  Is  it  not  also  true  that  for  the  surplus  or  the 
savings  of  which  the  Senator  is  speaking  we  must  look  princi- 
pally for  taking  the  loans? 

Mr.  WADSWORTH.  Absolutely. 

Mr.  LODGE.  The  Senator  can  state  better  than  I the  effect 
on  our  credit.  \ 

Mr.  WADSWORTH.  Mr.  President,  the  existence  of  a gen- 
erous surplus,  unendangered,  untlireatened  by  any  law,  is 
the  one  essential  for  the  carrying  on  of  a great  modern  war, 
where  industriaUorganizations  and  industrial  activities  are  so 
important.  We  can  not  be  sure  that  we  shall  come  to  a success- 
ful conclusion  in  this  tremendous  effort  by  so  arranging 'things 
that  we  shall  make  just  enough  money  to  live  on,  becaue  if  we 
make  any  miscalculation  in  that  we  shall  fall  down  into  utter 
destruction.  We  have  got  to  make  a generous  calculation  of  the 
surplus  that  we  shall  leave  in  the  hands  of  industry,  that  it  may 
be  reinvested;  that  it  may  expand  and  take  up  any  slack  that 
may  occur  in  our  commercial  or  industrial  activities  from  time 
to  time.  There  must  be  a generous  margin  of  safety.  And  when 
the  Senator  from  Washington  [Mr.  Jones]  says  that  if  he  had 
his  way  he  would  tkr*e,  out  of  the  $490,000,000  of  estimated 
profits  of  the  United  States  Steel  Corporation  for  1918,  all  but 
$90,000,000  and  leave  only  that  $90,000,000  of  net  profits  for  that 
corporation,  he  would  wreck  the  Steel  Corporation. 

Our  whole  shipbuilding  program  would  be  destroyed.  The 
company  could  not  live  beyond  the  year  1918.  Ninety  million 
. 11858—17873 


15 


dollars  would  not  enable  it  to  pay  even  a dividend  worthy  of  the 
name  to  their  stockholders,  let  alone  having  any  surplus  to 
meet  the  strain  of  the  years  to  come.  If  we  adhere  to  any  such 
principle,  if  we  adopt  any  such  theory  of  taxation,  we  shall  lose 
this  war  instead  of  winning  it. 

Mr.  President,  the  Senator  from  Massachusetts  lias  said 
something  about  our  credit.  Of  course  it  is  dependent  upon  the 
industrial  and  agricultural  and  commercial  prosperity  of  the 
country.  I would  not  presume  to  attempt  to  address  the  Senate 
on  that  tremendously  difficult  and  important  topic,  except  most 
briefly. 

Mr.  President,  it  may  be  said  that  credit  depends  upon  two 
things.  When  a man  goes  to  a bank  to  borrow  money  the 
cashier  wants  to  know  two  things  about  him : First,  his  char- 
acter, and  one  of  our  greatest  financiers  said  he  placed  more 
importance  upon  the  character  of  his  prospective  borrower  than 
upon  his  assets ; and,  second,  the  comparative  prosperity  of  the 
business  in  which  he  desires  to  put  the  proceeds  of  his  loan. 

We  will  assume,  Mr.  President,  that  American  industry  en- 
joys a good  character.  The  next  thing  the  lender  wants  to 
know  is  about  the  prosperity  of  the  industry  in  which  he  is 
going  to  invest  the  money,  not  this  year  alone,  but  what  will  be 
its  condition  next  year  when  he  will  have  to  pay  interest,  and 
the  year  after  that  when  he  will  have  to  pay  interest,  and  the 
year  after  that  when,  perhaps,  according  to  the  terms  of  the 
loan,  the  lender  may  want  all  his  principal  back. 

The  credit  of  the  Nation  is  on  the  same  basis  as  the  credit 
of  an  individual,  and  if  we  shall  so  fix  our  tax  laws  as  to  lead 
the  lenders  of  the  country  into  the  belief  that  our  industries 
will  not  be  prosperous  a year  from  now  or'  two  years  from 
now,  and  will  not  be  permitted  to  accumulate  and  use  a gener- 
ous surplus  the  credit  of  the  country  will  be  hurt.  We  will  not 
be  able  to  float  bonds  with  that  readiness,  and  facility  that 
would  otherwise  be  the  case. 

Now,  it  is  apparent  to  every  man  who  stops  to  think  that  we 
can  not  pay  for  this  war  as  we  go,  at  least  we  could  not  do  it 
except  we  confined  it  to  one  year  which  is,  I imagine,  conceded 
to  be  impossible.  We  must  borrow  money.  The  Government 
11858—17873 


16 


must  borrow  money  on  the  credit  and  faith  of  the  United  Slates, 
and  rhe  thing  that  underlies  a Government  bond  is  the  potential 
prosperity  of  the  industries  and  the  agriculture  of  the  country. 
The  Government  can  not  cramp  and  stagnate  industries  with  one 
hand  through  the  taxing  power  and  expect  to  borrow  all  the 
money  it  wants  with  the  other  hand.  You  can  not  extract  blood 
from  a stone. 

For  one,  sir,  I believe  that  the  committee,  in  spite  of  the 
criticisms  that  have  been  fanned  into  a flame  against  it,  in  spite 
of  the  idea  that  is  sought  to  be  spread  abroad  that  the  so-called 
swollen  fortunes  and  swollen  corporation  profits  are  not  taxed 
enough — I believe  that  the  Committee  on  Finance  has  been  en- 
dowed with  a true  vision  in  this  matter  and  has  looked  beyond 
the  year  1918  and  endeavored  to  estimate  and  analyze  what 
will  be  our  condition  in  1919  and  has  refused  to  take  any  chance 
which  if  ill  taken  would  bring  disaster  to  us  in  this  war. 

We  can  tell  better  when  1919  comes  whether  this  bill  taxes 
•industries  and  profits  and  fortunes  sufficiently.  My  humble 
judgment  is  that  it  goes  just  about  far  enough,  just  about  what 
those  industries  and  fortunes  will  bear  in  the  first  year  of  a 
war.  At  the  very  best,  with  due  respect  to  the  members  of  the 
Committee -on  Finance,  it  is  largely  experimental.  Neither  they 
nor  I nor  any  other  Senator  can  tell  exactly  what  the  effect 
is  going  to  be,  but  I do  believe  most  sincerely,  Mr.  President, 
that  it  is  wiser  for  us  to  proceed  a little  slowly,  so  that  we 
shall  not  make  it  impossible  for  us  to  proceed  with  lightning 
and  irresistible  speed  in  that  day  and  year  when  America  shall 
strike  the  decisive  blow. 

11858—17873 


O 


